Family Business - FIAT
Family corporations are gaining more popularity, as well as emerging as one of the most common types of companies. Perhaps, it explains why this business model has been attracting more and more interest from researchers and from the academic sphere. More specifically, family companies differentiate themselves from other business models with their performance and their capability of going beyond crisis. However, regardless of these positive distinctions, the majority of family business is not capable of going beyond their third or fourth generation. Family business can be defined as any business organization where the family can efficiently regulate the strategic direction of business for profit purposes or to derive a considerable segment of its wealth or identity. This paper aims at analysing family business in the automotive industry EXOR-FIAT with respect to succession, strategy, performance, governance, and structure.
Succession
FIAT had the tradition of having a family member as a chairperson and non-family member as the Chief Executive Officer. It implies that the business practices some of family leadership in a corporate context. The death of Umberto Agnelli, the chairperson of the company, brought about succession issues. The CEO, Giuseppe Morchio, also presented his resignation. The family business was in crisis of selecting a chairperson from the family as well as appointing a non-family member as the CEO. Morchio, though not the family member, had been eying the chairperson’s seat to remain the CEO at the same time. It would imply violating the culture and arrangement of FIAT, which maintained on having one family member as the chairperson and the non-family member as the CEO. Consequently, the family appointed Montezemolo to be the chairperson, rebuffing Morchio.
Succession comes with responsibilities. As the new chairperson, Montezemolo had a burden of managing the directorship of Ferrari being the company’s high-performance car subsidiary and Formula One business. Sergio Marchionne assumed the place of Morchio as the CEO. According to the case provided, the company had two individuals at the top being new to the business or at least their experience could not be matched with those ones of their predecessors. The family business appeared to be stabilizing after several ups-and-downs. The exit of Morchio and the death of Umberto Agnelli had the serious effects on the profitability of the firm, especially after the firm had begun stabilizing.
Governance
The mechanisms of governance presented in family businesses have an impact on the quality of strategic decision-making. However, on the other hand, there seems to be no consensus concerning the association between organizational performance, the ownership, and control of the business. Majority of researchers agree that the split-up of management and business ownership results has reduced operational costs, which might not exist if the two ones are amalgamated. The proof from the case indicates that in the FIAT Group Board, a minority of members represents the family. The family has a liability of appointing the CEO, an individual who has frequently been a non-family member. It was, at least, since 1939, when Giovanni Agnelli nominated Vittorio Valletta. In the case of Exor group (the holding company), the autonomous members of the board represent the majority of the FIAT Group board, which confirms an effective way of decreasing the power of family ownership.
Performance
FIAT exhibited a fluctuating financial performance. Its consolidated revenues had increased exponential from 1993 to 2001 before it started decreasing. The Return on Equity (ROE), which refers to the amount of net income returned as percentage of shareholders equity, had varied considerably between 1993 and 2004. The ROE indicates that the company experienced its highest profitability in 1996, with the ROE of 105%. The highest loss was experienced in 2002, with the negative ROE of 39.9%. There was an upward trend in profitability between 1993 and 1997. The highest loss experienced in 2002 can be attributed to the death of G. Annelli, the family leader. The family business closed the financial year on 31 December with its net loss of € 3.948 and the negative return on sales (ROS) of 7%. The return on investment declined sharply to negative from 1.5%, in 2001 to -4.7%, in 2002. It is considered as the indication of losses. From the case, 2 months after the demise of G. Agnelli, the GAeC SAPAZ approved the capital increase of € 250 million. It was partly through convertible bond, intended to be added to the investment increase of € 1.8 million from the FIAT Group and turned around the FIAT Group Automobile business. According to the case study, FIAT is in an extremely difficult position because the upsurge in investment has not resulted in commercial gain. Based on the case study, two facts were influencing the situation. First, there was an alternative to sell a portion of the automotive segment to the GM, the US firm. With regard to this fact, the GM acquired 20% of FIAT Group Automobiles and gave FIAT the entitlement to sell the remaining 80% from 2004 at the fair market value. The second fact was the bank’s convertible bonds, which amounted to about € 3 billion. If the family could not pay the debt, the banks would have the mandate to convert it into equity and becoming a shareholder. Consequently, the bank would hold approximately 30% stake, with the family diluted to about 20%. Regardless of this desperate situation, the shareholders acknowledged an increase in capital; and the family decided to obey the leaders.
Organizational Structure
Organizational structure refers to the manner that a company arranges individuals and jobs to realize organizational goals. In any organization, regardless of its size or complexity, the responsibilities of people are essentially defined by what they do, whom they report to, and who reports to them. Family firms, similar to other types of ventures, also have organizational structures. There are three kinds of organizational structures that can be adopted by a firm, whether family business or not. Firstly, divisional organizational structure is common in large companies operating in wide geographic regions. Otherwise, they might have smaller firms within the larger corporation to cover various market areas or products. In the functional organizational structure, the segments of business are classed based on their purpose. The matrix organizational structure syndicates the functional and divisional structures. Since its founding, FIAT can be said to have a divisional structure. The umbrella corporation has several other sub-companies dealing with various products. At the top of the structure, there is a parent company. The diagram below indicates the organizational structure of the FIAT-Exor. IFI has remained at the core of the Agnelli system, owning the controlling shares in IFINT and IFIL as well as at least 30% of the centrepiece of FIAT Group. The four firms, i.e. IFIL, FIAT Group, and IFINT have a varying mix of directors with different purposes. Initially, Gianni was the chairperson of all the firms except IFIL, while Umberto was leading the board.
Strategy
Organizational strategy refers to the total actions a firm intends to pursue in order to attain long-term goals. Put together, these actions constitute the organization’s strategic plan. Strategic plan might require the involvement from all levels of the company. The top management is responsible for the creation of larger organizational strategy, whereas the middle and lower management are responsible for the adoption and implementation of the plans in order to meet the overall objectives. The top management level in FIAT group is a board, which comprises of the non-family member CEO and the chairperson, who is the family member. The middle management comprise of managers of various respective firms. Marchionne, the Chief Executive of the Company, has established a strategic plan for the company upon assuming the role. The 2008 financial crisis has transformed the automotive industry dramatically forcing CEO Marchionne to act quickly in order to respond to the decreasing market and seize new opportunities. The company’s strategy was to seize the opportunity of Chrysler deal and to place a bid for Opel. The unambiguous roles and the quick chain of command allowed Marchionne to seal a memorandum of understanding with Chrysler. It was a crucial part of financial aid to the new FIAT-Chrysler by the US government.

With respect to succession, the exit of Morchio and the death of Umberto Agnelli had serious effects on the profitability of the firm, especially after the firm had begun stabilizing. In terms of governance, FIAT has separated management and business ownership. It has resulted in reduced costs, which might not exist if the two ones are amalgamated. In relation to performance, the company has witnessed fluctuation in its profitability as reflected by ROS, ROI, and ROE. With regard to the organizational structure, FIAT has a divisional structure, with an umbrella firm having several other subsidiaries dealing in various products.

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